Candy Crush Valuation: A Warning Of A Coming Tech Crash?

Candy Crush has been of one of the most successful games designed for Facebook and has provided a large chunk of the gaming revenue for the social media giant. Gaming accounts for about 10% of Facebook’s total revenue; the other 90% comes from advertising.

Today Candy Crush is being bought for $5.9 billion.

Is this successful company that provides a substantial portion of the biggest social media firm in the world worth it?

To me this sounds very expensive. Why would a company want to buy Candy Crush for so much money?

The company doing the buying, Activision, already owns the hugely popular World of Warcraft and Call of Duty; but its customers are mostly men. Candy Crush has a very large female following, so Activision must be trying to diversify its customer base. But at what price?

This is just one of a number of valuations that are increasingly unrealistically high. Today, unicorns, companies valued at USD $1 Billion or more are not hard to find. There are now 142 of them to be precise.

This is unsustainable. Many new companies are coming on the scene with very little revenue and dubious business models. Not only are many of these companies getting huge valuations but they are also getting funded.

I have exactly the same feeling as I did in 1999 before the dotcom crash. However, on my frequent trips to Silicon Valley, the people who I talk to there are denying the similarities. They say the investors are smarter this time around. They say that the new unicorns have strong business ideas and solid fundamentals.

Some of them may be strong, but a lot of them aren’t. Buckle up. Because in my view we will see a crash in the next fourteen months.

A lot of bad businesses are getting funded these days. Eventually they will fail.

This is perpetuating itself because with all of the unsound businesses getting funded, the message is that bad businesses work. Sooner or later this will cave in.

This may not be such a bad thing. These bad companies are taking all the money away from good companies, so the sooner they’re gone the better.